1/ I started thinking about accredited investor requirements again after the tweet below. The requirements make SO LITTLE SENSE & needlessly block people from making investments they want to make. For fun, here's a list of 10 absurd consequences of our accredited investor system.
2/ As a reminder, in the US you're an accredited investor if you make $200k/year for two years (or $300k jointly with a spouse) OR if your net worth, excluding your primary residence, is $1m or more. You have to be accredited to invest in startups, hedge funds, etc.
3/ Consequence #1: if you make $200k you're accredited (and therefore "sophisticated" enough to make high risk investments); if you make $195k then you're not.
4/ Consequence #2: if you made $200k for the last two years, you're accredited; if you made $195k last year, got a huge raise, and made $300k this year, then you're not.
5/ Consequence #3: if you make $200k in SF or Manhattan then you're accredited; if you make $150k in North Dakota (3x lower cost of living) then you're not.
6/ Consequence #4: if you support a family of 7 and make $200k, then you're accedited; if you make $175k and are single then you're not.
7/ Consequence #5: the $ limits haven't been adjusted for inflation for >30 years, so 5-10x more people are accredited today vs. in 1990. (Despite this increase, only a small fraction of people are accredited.) If the limits were so important, why are they 5-10x looser now?
8/ Consequence #6: if you make $200k, you can invest $150k into a high risk startup; if you make $150k you're not allowed to invest $10k into a high risk startup.
9/ Consequence #7: if you live in a $1m house & own a $750k investment property, you're not accredited (because primary residences are excluded from the net worth calculation). But if you move into the investment property and make it your primary residence, now you're accredited.
10/ Consequence #8: if you and your fiancé(e) have been dating for four years and each make $175k, you're not accredited; if you tied the knot two years ago then you're accredited.
11/ Consequence #9: if you're not accredited you can't invest $20k into a startup, but you can buy $20k of lottery tickets, or bet it all on red in Vegas, or short sell Tesla in the middle of an unprecedented bull market.
12/ Consequence #10: if you inherited $50m, invested it poorly, and are down to your last $1m, then you're accredited. But if you invested $25k into the stock market and grew it to $750k over 10 years, then you're not.
13/ Conclusion: isn't it great when we're protected from ourselves by arbitrary laws?🧐
